Fragile and sensitive supply chains are facing new challenges in the aftermath of the Russia-Ukraine military conflict

The last time the global economy was shaken as badly as it was during Covid-19 was almost 82 years ago during World War II. 

The world got shuffled by endless changes in how things used to be.

From a business perspective, the industrial shifts of paradigm that took place during the pandemic had us change our lenses for how we perceive and act.

They could be as small as going grocery shopping to as big as the total exports and imports of a country.

According to a recent CNN report the greatest risk facing global supply chains has shifted from the pandemic to the Russia-Ukraine military conflict and the geopolitical and economic uncertainties it has created.

Fragile and sensitive supply chains are facing new challenges in the aftermath of the Russia-Ukraine military conflict.

But as bad as things are now, they are likely to get worse for most countries around the world and indeed it will have an impact both on our international business supply chain, export and import segments.

Many studies suggest that energy consumption has a high positive correlation with economic growth.

Bangladesh is an example of a country with rapid energy demand growth.

In 2018, while GDP rose by 7.9%, primary energy consumption increased by 8.6% over 2017.

Towards the end of last year our government approved the import of 58.5 lakh tonnes of refined fuel for 2022 to meet the country's demand, which is about 32% more than what was potentially imported in 2021.

Year-on-year crude oil price spiked around 85% and there is no sign of a drop in prices in coming days due to recent global political and economic unrest.

To ensure smooth supply of oil related items in the most price competitive way, this is the right time to start renegotiations with major sources else any disruption of supply as well as higher price will indeed have a negative impact on the economy.

We believe the Saudi foreign minister Prince Faisal Bin Farhan Al Saud visit to Bangladesh and join a bilateral dialogue will have a positive impact.

Currently we have 35-40 days of safety stock storage facilities.

Priority needs to be given for enhancing storage capacity at least for 60 days from current 35-40 days.

Bangladesh is proud to have many success stories over the years, especially in achieving self-reliance in production of food, livestock and fishery but due to increase of demand Bangladesh imported 6.6 million tons of food grains in the fiscal year 2020-21, hitting a three-year record.

This fiscal’s import volume is also second highest in a decade; according to the statistics of the Food Planning and Monitoring Unit (FPMU) of the Ministry of Food.

Besides, over the past two decades Bangladesh domestic wheat production slumped from 2 million tonnes a year to just over a million tonnes, whereas demand for wheat reached nearly 7 million tonnes a year.

From 2015 to 2021, wheat import increased by 57%.

USDA says Bangladesh emerged as the world’s 5th largest importer of wheat.

According to importers, one-third of the global wheat supply comes from Russia and Ukraine.

Bangladesh largely depends on Russian, Ukrainian, Canadian markets for the bulk of its annual wheat imports.

Not only that, these two countries also supply a good amount of maize, rapeseed, canola, cotton, sunflower oil and pulses, and Bangladesh depends on imports from both nations to meet the domestic requirement for such commodities.

Bangladesh also exports wheat-based products and According to the Export Promotion Bureau of Bangladesh (EPB), the export value of wheat-based products in 2020-21 was approximately $283 million, an increase of about 160% over 2016-17’s figure.

To secure supply to meet local demand as well as to enhance wheat-based products export immediately the government should source for new markets else there may be supply disruption as well as shoot up procurement cost too.

The war in Ukraine is putting global supply chains to the test again.

Even before the conflict began, supply chain frictions had only improved marginally from the pandemic. 

Moreover, rising oil prices inevitably increase transportation and freight costs.

Bangladesh's overall import cost stood at $31.17 billion in the July-November period of FY'22 whereas export earnings stood at $18.64 billion.

More than 80% of the country's foreign trade takes place through sea ports and the rest are through land and airports.

The Russia-Ukraine war is severely disrupting shipping and air freight.

Russian forces are cutting off shipping routes, logistics firms are suspending services and air freight rates are skyrocketing, supply chain firms said.

As the war in Ukraine and sanctions on Russia are creating additional challenges for shippers and manufacturers along with enhancement of fuel price that will have direct impact on our export and import in all parameters as delivery lead time and air and sea cargo price, port congestion, container shortage and surcharges.

Effective joint initiatives from government and corporate sectors should be taken to mitigate these risks such as leverage tech-enabled supply chain solutions to identify gaps and keep a tab on the current developments and shifts in supply chain capacity so they can optimize their pricing without compromising much on the profit margin in this volatile market.

Another initiative can be to stay agile to adjust and readjust given the dynamic state of the market right now.

Safe and less expensive routes should be constantly tracked and updated, and supply chain operations need to be adapted accordingly.

Depending on the shifts in inventory destination and rising challenges across several routes, enterprises must be flexible enough to mobilize resources in response to the changing conditions.

Bangladesh cotton production in the country is not very significant, and thus it depends heavily on imports.

The total domestic cotton consumption was 6.910 million 480 lb bales in MY 2019-20, which increased by 14.47% to reach 7.910 million 480 lb bales in MY2020-21 despite the covid-19 pandemic.

It is expected to remain the same in MY 2021-22 due to sustained demand for yarn, fabric, apparel and garments as the world economies slowly recover from the pandemic.

But due to the Russia-Ukraine war cotton prices surged to more than a decade high in the global market, abnormal hike in freight charge and drought in the US, which will drive up the production cost for readymade garment (RMG) makers in Bangladesh, thus affecting their profitability.

Local growers can supply less than 2% of 9 million bales of cotton consumed annually in the country.

Bangladesh set a new record for apparel exports in the 2021 calendar year which was $35.57 billion.

Without ensuring smooth supply of cotton at competitive prices it will be difficult to retain RMG export growth and to overcome supply shortage the government should take a long term plan for production on cotton as well to ensure smooth import at the most competitive price immediate measures need to be taken with potential global sources of supply.

Remittance has become a major contributor to the Bangladesh economy.

As the emigrant workers from Bangladesh gradually increased over the years, the amount of annual remittance to the country significantly rose.

The country’s remittance earnings reached a record high of $22.07 billion in the just concluded year 2021 according to Bangladesh Bank data.

Remittance inflow to Bangladesh accounted for 6.6% of its GDP in 2020, making it the eighth largest remittance earner in the year, says a report by the Global Knowledge Partnership on Migration and Development (KNOMAD).

Remittances from more than 10 million citizens abroad are very important for Bangladesh and along with garment exports are key sources of foreign exchange. 

Saudi Arabia has been the largest source of remittances, followed by UAE, Qatar, Oman, Bahrain, Kuwait, Libya, Iraq, Singapore, Malaysia, the US and the UK.

The government set a remittance target of $26 billion for the current FY22.

Due to recent conflict, the cost of living has started to shoot up mainly in European and North American countries.

Already British inflation shot up faster than expected last month, February to hit a new 30-year high and it is forecasted to receive remittance mainly from Europe and North American may slow down whereas the Ukraine-Russia war will have not a major direct impact on the Middle East and North Africa (MENA) countries rather it may be blessing on their economy mainly due to rise of oil and gas price globally.

To grab upcoming opportunities, the Expatriates' Welfare Ministry along with Bangladesh foreign missions should take a joint initiative to identify future opportunities accordingly to take initiative here in Bangladesh to convert unskilled resources to skill resources.

It will indeed positively contribute to our foreign remittance and employment.

The Covid-19 pandemic was a global disruption across supply chain, trade, finance, health and education systems, businesses and societies like few others in the past 100 years.

Government and private sectors' effective and collaborative initiatives created a success story globally managing the crises in an efficient way that reflected on 2020 and 2021 GDP growth, while Bangladesh ranked among the top 10 GDP growth countries in the world. 

Joint government and private sector expertise efforts and initiatives indeed will play the key role to overcome the economic crisis that has arisen from the Russia-Ukraine conflict.

The author is working in a private company as executive vice-president & head of supply chain and procurement. Views are personal